Historic pension deal will endure for generations

It is hard to overstate the pension miracle that has unfolded so unexpectedly in recent weeks.

Thestar.com
June 22, 2016
By Martin Regg Cohn

A historic national deal to bolster the Canada Pension Plan is the long-awaited payoff for two of Kathleen Wynne’s biggest strategic investments since becoming premier:

Her made-in-Ontario pension. And her just-make-Justin-PM gambit.

After fighting and winning the 2014 provincial election on her Ontario Retirement Pension Plan, Wynne gained extra leverage with her fellow premiers. With a looming mid-July deadline to scale up the ORPP, Wynne threatened to go her own way if the other provinces didn’t buy into a bigger CPP.

First, though, Wynne laid the groundwork by going on the campaign trail to appear with Justin Trudeau in the 2015 federal election. As a sitting premier, she invested major political capital by talking up the future prime minister in joint election rallies.

Her unprecedented intervention raised eyebrows. In the aftermath, many wondered how Wynne would be repaid for that campaign debt.

Now the results are in from the prime minister and his finance minister, Bill Morneau, for whom Wynne also campaigned relentlessly (he had previously served on Wynne’s ORPP advisory panel). Working closely with Ontario, the federal government set the table for pan-Canadian pension improvements that many thought impossible.

Trudeau huddled with Wynne in a private meeting room at Women’s College Hospital earlier this month, and Morneau held a three-hour working dinner with Ontario Finance Minister Charles Sousa at an Ottawa restaurant. With time running out, the two tag teams - Trudeau-Wynne and Morneau-Sousa - discussed who would call whom among the provincial outliers, and how far Ontario would go in diluting its own robust pension proposal.

Ottawa laid out its secret weapon - a willingness to enhance the Working Income Tax Benefit to offset any increase in premiums for low-income workers.

Sousa laid down his bottom line, firing off a letter warning the other provinces the ORPP would move forward in July, after which CPP reforms would be off the table. In his written proposal, Ontario offered to scale back its ORPP to 70 per cent of the original target, but it needed a firm commitment now - or never. Sousa compromised further at a meeting of finance ministers in Vancouver this week, settling for 66 per cent of his initial target.

While the final CPP deal doesn’t go quite as far or as fast as Ontario’s original plan - it will take a few more years to phase in - it will endure for decades.

It is an unexpected triumph for Trudeau and Morneau, a big win for Wynne and Sousa, and a shared victory for the provincial politicians from different parties who came round in the end. Above all, it is a winner for working Canadians who can now look forward to a more secure retirement - especially the two-thirds of Ontario workers who lack a private pension.

A half-century after the inception of the Canada Pension Plan, whose paltry payouts are exceeded by most other industrialized countries, it was overdue for an overhaul. Decades from now, when private pensions will have virtually disappeared from the workplace - displaced by glorified RRSP savings plans with high fees and unreliable returns - this week’s improvements to the CPP will be seen as a turning point.

Until this week, reform faced four daunting obstacles: Ideological rigidity from former prime minister Stephen Harper, who scuttled CPP talks in 2013 and tried to sabotage the ORPP; a CPP amending formula more complicated than constitutional change (Ottawa plus seven provinces with two-thirds of the population); public indifference to pensions, especially the idea of paying premiums now for payouts far off in the future (always a political challenge); and open hostility from business interests that are phasing out workplace pensions while refusing to backstop their workers’ retirements through a public plan.

Wynne’s pension determination not only forced the other premiers to make up their minds on the CPP alternative (which was always Ontario’s first choice), it also rattled and rankled the business community. In that sense, the ORPP was a stalking horse for the CPP, persuading many business leaders to embrace a pan-Canadian plan as an alternative.

“Had we not continued to put this issue on the table squarely with our colleagues across the country, I firmly believe that we would not be here today,” Wynne said Tuesday, describing herself as a “thorn in the side” of her counterparts.

“The ORPP made it clear to the other provinces that if we don’t act soon, Ontario will proceed,” Sousa said in an interview.

Beyond the tangible benefits of CPP expansion - portability, sufficiency, efficiency, affordability and scalability - there may not be any big political payoff for Wynne. She can and will claim credit for driving the agenda, but the issue will have waned by the time of the next election. All the more reason to acknowledge the political risks she has taken to date on the ORPP, and the questions she will face about the costs of winding down its embryonic bureaucracy - a cost of doing business in the range of a few million dollars, but a price worth paying for a CPP that will yield billions of dollars for Canadian workers’ retirements.

While Wynne can take credit for helping to midwife a new CPP, she can also breathe a sigh of relief that she is now off the hook for the ORPP - avoiding the execution risk of building a pension bureaucracy from scratch (more expensive than first thought) at a time when voters have little tolerance for more Liberal bungling or boondoggles. By offloading the ORPP onto the CPP, she has done a good political deed - and dodged a bullet.